[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 102-000
THE REBATE OF VALUE-ADDED TAXES AT THE BORDER AND THE COMPETITIVE
DISADVANTAGE FOR US SMALL BUSINESSES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, JULY 7, 2004
__________
Serial No. 108-70
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
______
U.S. GOVERNMENT PRINTING OFFICE
96-503 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania ENI FALEOMAVAEGA, American Samoa
JIM DeMINT, South Carolina DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia GRACE NAPOLITANO, California
TODD AKIN, Missouri ANIBAL ACEVEDO-VILA, Puerto Rico
SHELLEY MOORE CAPITO, West Virginia ED CASE, Hawaii
BILL SHUSTER, Pennsylvania MADELEINE BORDALLO, Guam
MARILYN MUSGRAVE, Colorado DENISE MAJETTE, Georgia
TRENT FRANKS, Arizona JIM MARSHALL, Georgia
JIM GERLACH, Pennsylvania MICHAEL MICHAUD, Maine
JEB BRADLEY, New Hampshire LINDA SANCHEZ, California
BOB BEAUPREZ, Colorado BRAD MILLER, North Carolina
CHRIS CHOCOLA, Indiana [VACANCY]
STEVE KING, Iowa [VACANCY]
THADDEUS McCOTTER, Michigan
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Policy Director/Deputy Chief of Staff
Michael Day, Minority Staff Director
(ii)
?
C O N T E N T S
----------
Witnesses
Page
Hufbauer, Mr. Gary Clyde, The Reginald Jones Senior Fellow at the
Institute for International Economics.......................... 2
Barfield, Mr. Claude, Resident Scholar and Director of Science
and Technology Policy Studies, American Enterprise Institute... 4
Jones, Mr. William, Chairman, Cummins-Allison Corporation........ 6
MacGuineas, Ms. Maya, Executive Director, Committee for a
Responsible Federal Budget..................................... 8
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 22
Velazquez, Hon. Nydia........................................ 24
Prepared statements:
Hufbauer, Mr. Gary Clyde, The Reginald Jones Senior Fellow at
the Institute for International Economics.................. 28
Barfield, Mr. Claude, Resident Scholar and Director of
Science and Technology Policy Studies, American Enterprise
Institute.................................................. 31
Jones, Mr. William, Chairman, Cummins-Allison Corporation.... 41
MacGuineas, Ms. Maya, Executive Director, Committee for a
Responsible Federal Budget................................. 47
(iii)
THE REBATE OF VALUE ADDED TAXES AT THE BORDER AND THE COMPETITIVE
DISADVANTAGE FOR U.S. SMALL BUSINESSES
----------
WEDNESDAY, JULY 7, 2004
House of Representatives,
Committee on Small Business
Washington, D.C.
The Committee met, pursuant to call, at 2:05 p.m. in Room
2360, Rayburn House Office Building, Hon. Pat Toomey,
presiding.
Present: Representatives Toomey, Bartlett, and Chocola.
Mr. Toomey. Good afternoon, everyone, and welcome to the
Small Business Committee. The hearing today is on the topic of
the rebate of value-added taxes at the border and the
competitive disadvantage for U.S. small businesses.
Today, the Committee will hold a hearing to examine the
effect primarily on U.S. small businesses of international
trade rules administered by the World Trade Organization that
permit the rebate of value-added taxes at the border while
denying comparable treatment for other types of taxes such as
income taxes.
European countries impose value-added taxes as high as 25
percent, depending on the specific country. These taxes are
imposed whether the goods are manufactured in Europe or
imported from abroad. However, the VAT is rebated at the border
when goods are exported from Europe.
In contrast, current trade rules administered by the WTO do
not properly recognize the ability to rebate other types of
taxes, such as income taxes at the border. Because the United
States does not impose value-added taxes, goods exported from
the United States to Europe bear the full brunt of U.S. income
taxes and the value-added taxes in Europe while goods exported
from Europe to the United States enjoy a full rebate of VAT tax
at the border.
As Congress examines this apparent comparative
disadvantage, this hearing will discuss various options to deal
with the issue.
We have got an excellent panel of experts with extensive
experience to testify on the subject today:
Dr. Gary Hufbauer, Professor of Economics at Georgetown and
a Senior Fellow at the Institute for International Economics,
has written extensively on U.S. international taxation. Claude
Barfield, a Resident Scholar and Director of Science and
Technology Policy Studies at the American Enterprise Institute
similarly is well published on issues of trade. Bill Jones,
Chairman of Cummins-Allison Corp, he will give us his
perspective as a business negatively impacted from this
practice. And lastly, we will hear from Maya MacGuineas--am I
mispronouncing that?
Ms. MacGuineas. MacGuineas.
Mr. Toomey. MacGuineas, Executive Director of the Committee
for a Responsible Federal Budget.
I look forward to the testimony of all the witnesses. On
behalf of the Committee, I wish to thank all of you for being
here today, especially those who have had to travel far. I
would be happy to yield to either of my colleagues if they
would like to make an opening statement.
If not, then I will introduce the first witness.
Let me welcome Gary Hufbauer. Gary Hufbauer is the Reginald
Jones Senior Fellow at the Institute for International
Economics. Mr. Hufbauer is no stranger to this Committee having
testified before the Committee just this last year on
international tax issues. We welcome--
[Pause.]
Mr. Toomey. There we go, we are back. We do in fact want to
hear what you have to say.
We welcome you again before the Committee, and we look
forward to your comments. We will go with five minutes for the
statement from each witness. The clock, we have a light there
that indicates that. I imagine everybody knows how that works.
Orange is the one minute mark, is it not, and red means the
time is up, and then we will proceed to questions.
So at this point welcome, and I entertain the testimony
from Mr. Hufbauer.
STATEMENT OF GARY CLYDE HUFBAUER, INSTITUTE FOR INTERNATIONAL
ECONOMICS
Mr. Hufbauer. Well, thank you very much, Mr. Chairman. As
you know, small business faces numerous disadvantages when
selling abroad, and many of them or most of them can be traced
to the substantial overhead costs of mastering a new
environment.
Mr. Toomey. Could you bring the microphone a little closer,
please?
Mr. Hufbauer. Sure. Is this better?
So small business faces disadvantages when selling abroad,
but it also faces larger firms generally competing in the
United States, in the U.S. market, and they are able to spread
their overhead cost. But in addition to that we have the tax
issues, which you described, and the foreign competitors enjoy
the benefit on their value-added tax and kindred taxes, such as
the Canadian GST.
The international rules, which are codified in the WTO, on
border tax adjustments have a long history and they have
attracted a lot of scholarly discourse, but just in brief, the
rules work to the disadvantage of firms based in a country that
does not use a VAT or GST as a source of public revenue, but
instead relies on direct taxes--particularly social insurance
and corporate income taxes, and of course, that is the United
States.
Now, over the past 40 years, governments worldwide have
turned to VAT-type taxes to pay for public needs, particularly
entitlement programs, and amongst OECD countries, VAT revenues
typically amount to between four and eight percent of Gross
Domestic Product.
In economic theory, border adjustments for uniform
businesses taxes are equivalent to exchange rate adjustments of
approximately the same magnitude. So given that theoretical
equivalence, the classic answer to national differences in
business tax systems is that exchange rate adjustments will
eventually offset any tax differences, such as the ones that
you noted, Mr. Chairman, and wash away any permanent effect on
business location, decisions or competitive disadvantage.
So according to the classic logic, business firms in
neither the exporting country nor the importing country should
care where their business taxes are adjusted at the border. But
there we have the theory. On the other hand, we have the
practice, and the practice is they do care, and they care a
lot.
No country has imposed a VAT, or at least no country of any
significance, without adjusting at the border. If they believe
their classic theory, they would say, hey, the exchange rate
will take care of it, no need to adjust. They do not believe
it, and they have adjusted instead.
Now, American firms as you know have complained about these
adjustments since the early 1970s, and one reason, but not the
only reason, is that border tax adjustments are immediate and
certain. You know they are there. You get them. The exchange
rate adjustments are distant and problematic.
Research on fundamental forces that supposedly determine
exchange rate, the research shows that they do an exceedingly
poor job. You will not make money using fundamental forces to
predict exchange rates. You would do better to flip a coin.
So if fundamental forces cannot explain exchange ranges,
then what confidence can you place in the classic prescription
that any benefit on border adjustments will be offset by
exchange rate changes? I suggest you cannot place much in that.
My suggestion, if the Congress repeals the FSC, which it
seems about to do, that it should pass yet another resolution
calling upon the European Union and other WTO members to
abolish their preferential border tax adjustments for indirect
taxes. They should cease exempting these taxes when they export
and cease imposing them on their imports.
Now, I know that sounds pretty academic and pretty
theoretical, but what I would suggest if a last call to the WTO
members falls on deaf ears, the Congress should seriously
consider for this and other reasons scrapping the corporate
income tax in its entirety and replacing it with a business tax
that can be adjusted at the border. U.S. firms can then enjoy
tax parity with their foreign competitors, both at home and
abroad.
Thank you, Mr. Chairman.
[Mr. Hufbauer's statement may be found in the appendix.]
Mr. Toomey. Thank you very much, Mr. Hufbauer.
Our second witness is Claude Barfield, Resident Scholar of
the American Enterprise Institute. We look forward to drawing
on your experience with international trade law. Welcome.
STATEMENT OF CLAUDE BARFIELD, AMERICAN ENTERPRISE INSTITUTE
Mr. Barfield. Thank you very much, Mr. Chairman.
Because one of the other panelists, my colleague, Gary
Hufbauer, is an acknowledged expert in the tax side, I am going
to confine my testimony, at least my oral testimony, to the
larger and the broader implications of a whole series of FSC
decisions, ending with the decision that would allow you to
invoke $4 billion worth of damages against the United States.
I would like to point just to four issues, three problems,
and then some suggestions for reform of the system.
First, the question of national sovereignty versus the
reach of WTO rules into domestic policy. And I should say as a
footnote, I am a strong supporter of the WTO. You may not think
so by the time I finish my testimony.
The FSC/ETI decisions raise troubling questions about the
reach of multilateral trading rules versus the right of
national governments to determine fundamental tax policy.
Because these decisions cannot be overturned short of a
unanimous agreement by WTO member states, they also highlight a
constitutional flaw in the WTO that is already operating in
this and other cases to undermine its legitimacy; that is, the
imbalance between the highly efficient and virtually unchecked
dispute settlement system and the inefficient and practically
unworkable consents of rule-making procedures.
In the final appeals before the WTO appellate body in these
cases, the Bush administration clearly recognized the gravity
of the issue or issues raised by the earlier decisions, and
starkly warned the appellate body of the consequences of an
adverse ruling. In an unprecedented move, they sent not a
career USTR lawyer, but the Deputy Secretary of the Treasury,
Ken Dam, to the hearing.
And Dam said the following: ``Few things are as central to
a country's sovereignty as how it raises revenue. The necessary
implications of the panel's analysis is that the WTO may second
guess the reasonableness of a member's decision regarding the
most basic elements of the tax system.''
Now, in almost every aspect, I would argue the final
judgment of the appellate body of the earlier panel reports
despite protestations to the contrary ignored Dam's warning,
and in my judgment, the Bush administration should have taken a
much stronger stand, at least verbally, after the decisions,
and even raised the question that the United States ought to be
rethinking its relationship with the WTO. We can talk about
that later.
Secondly, the problem of the WTO as what I would call an
incompetent world tax court, and here I am not going to go into
details, but my point is that if you get into the details of
the decisions you can see that the reasoning and the
conclusions of both the panels and the appellate body--there
were two panel decision and two appellate body decisions--
really were or at least showed a stunning ignorance of
international tax law.
And I point out in the final ETI ruling, the appellate body
posited the necessity for clean, bright lines between domestic
and foreign source income, ignoring the impossibility of finely
tuning such divisions when attributing income from transactions
related to R&D, manufacturing, marketing, advertising, and
transportation.
In the complex and shadowy world of international
taxations, systems aim at avoiding double taxation inevitably
allows some income to escape all taxation, and in most
countries these fine lines are the subject of endless haggling
between the government and its corporations.
Thirdly, the WTO as avenger, this was the--the damages that
were levied, the $4 billion, is being called by some
international tax experts as outrageous, and I think that is
true. Remember, the WTO is a reciprocity-based organization, or
the rules, and thus it has been a standing practice since the
early days of the GATT the retaliation for a breach of
obligations should be limited to the trade effects of that
breach. There are also WTO subsidy rules that have the
obligation that retaliation be proportionate.
In this case the United States argued, after it lost the
case, that the damages should be no more than $1 billion for
the subsidy effects, not even the trade--beyond even the trade
effects. The EU argued, however, that the amount of the subsidy
should be the amount of the worldwide subsidy, the worldwide
effect, and astonishingly the arbitrators had bought this
interpretation.
They did so on the basis of what they called the
``gravity'' of the breach and the nature of the upset of the
balance of rights and obligations, ignoring the mandate for
portionality. To reach this conclusion, the arbitrators invoked
international law normally used for political and human rights
violations, arguing that the U.S. breach represented an ergo
omnes process. That is against all members and not against the
EU.
This decision went far beyond anything that had been
negotiated or that had been present in the WTO.
Finally, stepping back from the details of these cases, I
would argue that what is needed is a major change in the
mindset in intellectual isolation of the WTO dispute settlement
system.
In the FSC/ETI cases, both the panels and the appellate
body demonstrated a stunning technocratic determination to
barrel forward with their own pet legal theories and ignore the
political history in the context of the issues at hand. I have
suggested, not just for this case but in other forum because I
think this case represents a kind of classic and extreme reach
of what can happen when you go beyond the negotiated rules, I
think this is happening in other areas, in anti-dumping, in
safeguards, in environmental rules.
There are two things I think we should consider in terms of
the future of the WTO dispute settlement.
One, and this is a legal term that they manage to invoke it
sometimes, is ``non-liquet,` and that phrase is just a Latin
phrase. It means ``it is not clear.''
Given the widespread agreement that WTO tax are replete
with lacunae and contradictory provisions, and given the
questions concerning the legitimacy of judicial decisions are
magnified at the international level, the panels and the
appellate body should be instructed to use this doctrine more
frequently and throw decisions back to the WTO general council
or to trade--that is C-O-U-N-C-I-L, not counsel--or to trade
round negotiations.
The critics of non-liquet argue that it is prohibitive
because international law is necessarily complete, or that is,
the duty of judges to step in and fill gaps, and particularly
in contentious areas. WTO rules by common consent are certainly
not complete, and arguments for gap-filling by judges reflect a
dangerous and even anti-democratic myopia.
Alternately, you could have the invocation of a doctrine
that we have used in the United States, the so-called political
issues doctrine developed by the U.S. Supreme Court. The
doctrine is meant to provide a means by which the judiciary can
avoid decisions that have deeply divisive political
ramifications and thus in the opinion of the court should be
settled through judicial democratic processes involving both
the legislature and the executive.
In this case, it would involve trade negotiations, and not
have the appellate body and the panels get out ahead of those
negotiations.
In summary, the proposition advanced here is that heading
off corrosive conflicts between the United States, the EU, and
other WTO members in the future will necessitate the forum of
international trading rules that have now enmeshed and
entrapped both trade superpowers.
Thank you very much.
[Mr. Barfield's statement may be found in the appendix.]
Mr. Toomey. Thank you very much.
Our next witness is Bill Jones, Chairman of Cummins-
Allison, located in Mount Prospect, Illinois. In addition to
heading up a small manufacturing business, he also serves as
the chairman of the United States Business and Industry
Council.
Mr. Jones, welcome.
STATEMENT OF WILLIAM JONES, CUMMINS-ALLISON CORPORATION
Mr. Jones. Also Cummins-Allison is an Indiana corporation
founded by the Allison family, which you may be familiar, Mr.
Chocola.
But Mr. Chairman and Committee Members, my name is William
Jones, and I am Chairman of Cummins-Allison, a privately held
manufacture company based in Chicago. As you said, I also serve
as the chairman of the United States Business and Industry
Council this year, and I am a member of the National
Association of Manufacturers.
I appreciate the chance to be here today to talk with you
about an issue that is extremely important to me, namely, the
crisis in American manufacturing, and the way the rules of the
game in international trade are stacked against American
companies.
The subject of this hearing, which is the disparity of the
treatment of U.S. and foreign taxes in global trade, constitute
a blatant example of how American manufacturers are currently
disadvantaged and how policymakers must become more aggressive
in the defending of U.S. interests.
Cummins-Allison is one of the world's leading producers and
innovators in the manufacture of equipment that scans, sorts,
denominates, and authenticates currency for national security
issues. This is an area that is quite literally essential to
America's economic and national security, providing the
critical function and deterrence of counterfeiting and the
preservation of the dollars, the world's preeminent currency.
Unfortunately, we, like so many manufacturers in this
country, have been dramatically and negatively affected by an
uneven playing field in the global trading system.
Twenty years ago American companies accounted for 90
percent of the U.S. requirements in the field of currency
authentication. Today, that percentages is down to 30 percent,
and we, Cummins, are the only surviving U.S. producer. This is
a story that could be repeated for any number of American
manufacturer industries and their workers.
What is happening? You hear a lot of talk about cheap
foreign labor and lower costs abroad, about the inability of an
advanced economy to compete against low-cost developing world,
but what we consistently fail to recognize is how much of our
problem has nothing to do with the cost or the competitiveness
or wage rates, and everything to do with the rules that
literally make no sense and serve no readily apparent purpose
other than to artificially punish U.S. manufacturers.
No issue is more illustrative of that point or more
important to the bottom line of American companies and workers
than the one that the Committee is considering today. I do not
come here as an expert on the legal niceties relating to the
border adjustability of taxes, but I can tell you that I
understand the fundamental business importance of this issue.
The problem is as simple as it is unbelievable, and amounts
to essentially the double taxation of U.S. producers selling
abroad while our foreign competitors sell largely tax-free in
this market. Let me illustrate.
If our company, Cummins, or any other American company
wants to sell a product in China or Europe where the value-
added taxes predominate, we get no refund or rebate of U.S.
income taxes, but we do have to pay the foreign VAT. Meanwhile,
foreign producers export to America get their domestic VAT
rebated while picking up no income tax here.
While there are complexities in calculating the exact
effect of this practice, including issues relating to the
effects of state sales tax in the United States, it has been
estimated that this results in as much as a 25 percent
difference in the price they can sell for here versus what we
can sell for there.
What is astonishing is that, as far as I can tell, the
international rules that allow this to go on have no legitimate
economic basis whatsoever. The rules are based on an artificial
distinction between so-called direct taxes and indirect-like
VAT taxes, even though economists have shown that these taxes
tend to have the same incidence and effect. Allowing indirect
but not direct taxes to be rebated on exports are imposed on
imports makes no sense from a policy or economic standpoint,
but I can tell you that it makes the task of keeping jobs and
businesses in the United States far more difficult.
How does something like this happen? Apparently this was
just an obscure line squirreled away in the original agreement
of the General Agreement on Tariffs and Trade, something that
never made any sense in a situation where our negotiators just
simply got out-foxed.
For decades, Democrats and Republicans, Congress and
administrations, and commentators and economists have all
agreed that this rule is ridiculous. Every fast-track bill says
we should make it a priority to fix it, and yet nothing is ever
done.
From a business standpoint, I have to implore you, stop the
madness. We have lost 3 million manufacturing jobs, we have a
trade deficit that is literally unprecedented in the history of
the universe, and we have been the most important market in the
world for many, many years.
How is it that we do not seem to have the leverage to get
the issue like this taken seriously? Of course, we do. We only
have to be willing to use it and to play hardball the way our
trading partners do so well and so effectively. The
prescription is quite simple. We should make clear that we will
not agree to any new multilateral trade agreements that does
not fix this problem, and more, we should make clear to our key
trading partners that we intend to see this accomplished in the
short term, say the next year to 18 months. After that, we
should make clear that we are willing to take more aggressive
steps, including possible limitations on market access here
until we see a resolution.
The rest of the world has had more than five decades to
reap the benefits of this absurd inequity. They have had their
unfair advantage, and enough is enough. It is time to stand up
for our manufacturers and change the rules.
Thank you, Mr. Chairman.
[Mr. Jones' statement may be found in the appendix.]
Mr. Toomey. Thank you very much, Mr. Jones.
Our concluding witness this afternoon is Maya MacGuineas,
Executive Director of the Committee for Responsible Federal
Budget. We welcome you before this Committee, and look forward
to your comments.
STATEMENT OF MAYA MACGUINEAS, COMMITTEE FOR A RESPONSIBLE
FEDERAL BUDGET
Ms. MacGuineas. Thank you. Good afternoon, Mr. Chairman,
Members of the Committee. I should actually just clarify, I am
not speaking as executive director of the Committee for a
Responsible Federal Budget, but rather as a director of the
Fiscal Policy Program at the New America Foundation.
As you are all aware, it is the case that while European
exporters benefit from rebates on their value-added taxes at
the border, parallel tax relief for U.S. companies has been
ruled illegal by the WTO. This is due to the distinction
international trade law draws between the value-added taxes
used by most nations and the corporate income tax that U.S.
firms are subject to. Accordingly, the FSC/ETI benefits for
U.S. companies appear to be on track to be repealed.
There is considerable debate about whether border
adjustments affect the competitive trading positions of
nations. On the one hand, general economic theory holds that in
a system of floating exchange rates, changes in tax levels are
offset by changes in exchange rates. Under this line of
thinking even for countries without floating exchange rates
rebates are not believed to make differences in the long run.
However, on the other hand, if this were true, it would not
matter to our trading partners whether their VATs were rebated,
yet it does matter and they are rebated.
In the real world, exchange rate movements can be quite
sticky, and not only are relative exchange rates affected by a
variety of economic factors, the timing of exchanges can be
quite unpredictable.
So, as is often the case when it comes to theoretical
reductions, we cannot know for sure whether the economic
relationship between border adjustments and exchange rates
holds true, nor can we know for sure the extent to which U.S.
companies will actually be harmed by the WTO ruling. Either
way, the current bill making its way through Congress is
premised on the belief that U.S. companies will be severely
disadvantaged by the change, and the bill therefore includes
compensatory measures.
It is true that the corporate tax bill does little to help
small businesses in particular, which are less able to absorb
general overhead cost, and do not benefit from the economies of
scale that many of their larger competitors do. From the
perspective of this Committee, that may well be problematic.
Similarly, it is true that the benefits of the bill are
spread quite unevenly with some sectors benefitting a good bit
more than others. No matter the extent to which U.S. companies
will be harmed by the tax law change, I would argue that the
targeted tax relief, which is included in the FSC/ETI bill, is
not the right approach to remedying the problem.
Already the cost of the bill is quite expensive and it is
likely to be more expensive than current projections since many
of the expiring provisions would undoubtedly be renewed. Since
the costs will increase budget deficits, thereby decreasing
government saving, the effect could actually be to worsen our
trade balance and harm small businesses.
Furthermore, the general approach of targeted tax relief
delevels the playing field between U.S. companies. Distorting
the tax code to favor particular sectors of the economy may be
politically appealing, but it is not good policy, nor does it
help American consumers or the economy.
And finally, while I will not mince words here, this bill
has become an egregious example of how effective special
interest lobbyists have become filling the package with
expensive, unnecessary, and unjustified corporate handouts, and
any pretence that this constitutes good tax policy was lost
long ago.
But out of the need to alter our tax policy does come an
opportunity. The money saved from removing the illegal subsidy
could be used to either reduce the deficit or help sweeten a
comprehensive tax reform deal along the lines of what we saw in
1986, which would include eliminating many existing loopholes
and subsidies while lowering corporate income tax rates.
Another desirable option would be to introduce a
consumption tax, which could be adjusted at the border, to
replace income taxes. Consumption taxes have a number of
benefits, including, of course, that they would increase
national saving. If we want to improve our trade balance, not
to mention longer term economic performance, improving our
national saving rate could play a critical role in this
endeavor.
At the same time, most consumption taxes, such as sales
taxes, tend to be highly regressive whereas the existing income
tax at both the corporate and individual level is quite
progressive. However, it is quite possible to institute a
progressive consumption tax that would maintain existing tax
burdens or even make them more progressive, if desired, rather
than shift the burden down the income scale.
Since my time here is short today and I will not go into
the details of how this might work, but a progressive
consumption tax is desirable not just with regard to tax
treatment and trade issues as we are discussing today, but in
its ability to balance the oftentimes competing tensions
between tax efficiency and tax equity.
Thanks for allowing me to testify today.
[Ms. MacGuineas' statement may be found in the appendix.]
Mr. Toomey. Thank you very much for your testimony. I would
like to thank all the witnesses for their testimony, and I
would like to begin with some questions, and I suppose, in
fact, starting with a comment which some of you may disagree
with, and I would appreciate perhaps starting with Mr.
Hufbauer, your reactions to this thought.
It strikes me that there is a little bit of a irony in this
whole discussion because the behavior that we are finding
problematic, specifically the rebating by say European
countries of the VAT when they choose to export their products,
really amounts to European taxpayers subsidizing American
consumers.
What we are saying is we really do not like it when
European taxpayers allow American consumers to buy things
cheap, which strikes me as a bit ironic.
For instance, if they instead of rebating the VAT, if they
rebated twice the VAT or 10 times the VAT, and all European
countries, for instance, did this, and they were all competing,
American consumers would get things for free. That would be
difficult for American manufacturers to compete with,
obviously. But for American consumers, it would be an enormous
windfall.
Do you agree that this current system amounts to foreign
taxpayers subsidizing American consumers?
Mr. Hufbauer. Yes, it does, and I think there is always a
balance between welcoming the subsidy to consumers and thinking
about your production base, and that is what all these
international rules are about, trying to strike that balance,
recognizing that consumers are also producers and that over a
period of time that, you know, earn what you buy as a household
or as a nation.
So your analysis is completely correct, and we have a
number of laws in our trading system, and this area is one of
them, where we say, well, you know, it might be great for
consumers, but it is too hard on producers to have to compete
essentially with the foreign treasury, which is what it comes
down to, and that is going to be too detrimental to our
productive apparatus over a period of time.
I would say in this particular case the balance has been
struck at the wrong place. We are too welcoming of these, as
you say, subsidies to consumers.
Mr. Toomey. Mr. Barfield, would you like to comment on
that?
Mr. Barfield. I fully agree with what Gary said, and my
instincts would normally be with the producer, it is a question
of balancing. I think this just goes too far in terms of
helping producers in Europe or other countries--not just Europe
since you have the potential of VAT and then the rebate all
around--against U.S. manufacturers.
I am normally skeptical if people talk about an uneven
playing field, but I think in this case it is justified. The
problem is that--I mean, we are not going to go in detail here,
but if you look at the history, you know, the negotiators on
both sides were aware of this, and it is very difficult to mesh
the universal or the territorial system, and those who have a
VAT, and those who have direct taxes, and that is why, you
know, 20 years ago, 25 years ago there was a compromise. I
mentioned this in my testimony. It was put together, and both
sides would say--basically said--GATT panel said that both were
wrong in terms of the way they were structured.
So both the EU and the United States said, well, we will
just agree to live and let live, and that is the balance that
was upset here, I think, after 25 years, and in a way, as I try
to argue, that I think the panels and the appellate body were
really just over the--this was an issue they know very little
about. Somehow they were determined to teach a lesson to the
United States, and ignored the possibility or even going back
to look at the political history here, and that is why we are
in the mess that we are in, I think.
Mr. Toomey. Thank you. This always just strikes me as a
very peculiar debate that we engage in. It strikes me as
irrational economic policy on the part of those countries that
choose to subsidize exports instead of domestic consumption. I
do not know why that is good for a given economy to engage in
that, and yet they do. And then that manifests itself in lower
prices for American consumers in this case, and we object
strenuously to that, and for obvious reasons. There are some
manufacturers that are hurt by that.
I have a question for Mr. Jones, which is, it strikes me
that one way to address this, and I think somebody referred to
this in the testimony, I have always been one that believes
that corporations do not pay taxes, they collect taxes, and
corporate income taxes is counterproductive in many ways.
If we abolished corporate income taxes altogether, does
that not solve this problem, do you think its some of the
problem? Does it solve a problem for your company?
Mr. Jones. No, I would encourage you also to abolish the
income tax and institute a VAT.
One of the problems you have as a--
Mr. Toomey. I am not necessarily advocating the institution
of a VAT as a substitute, by the way.
Mr. Jones. It would help us tremendously because the fact
is I have to sell against manufacturers from other countries
that have a cost of no government. I have tremendous fixed
cost. And what happens, and I think strategic planning,
particularly on the part of certain Asian countries, they
understand I have to have a certain capacity to cover all of my
fix cost. Labor is only seven percent of my total cost, okay?
Now, my R&D is almost 20 cents on a sales dollar. Now my fixed
overhead is very substantial.
So if I can make all of my money in my home market like
Japan at a much higher price, cover all of my total cost, I can
sell in this market at a dumped price till the cows come home,
and their strategy is to drive all of the U.S. production and
get an industry out of business, which I have seen happen in
many industries. And the consumer does pretty good in the short
term, but when all of the U.S. industry is gone they then raise
their prices.
So there is two losers in the end when we let them follow
this kind of a strategy to its end. First, we lose our own
industrial base. Second, the treasury loses the revenue, and we
wonder why we have a huge federal deficit. Well, as our
manufacturing goes down the tubes, you do not collect income. I
do not care how you are going to do it, through a VAT or an
income tax or whatever. But the fact of the matter is
manufacturers produce and create wealth. Farming, mining, and
manufacturing, that is what creates wealth. And if we do not do
things to help that, the consumer is going to have no job.
I can tell you I talk to people that used to work for
Motorola every week, and what has happened to that company
through these unfair trade agreements, and the lost jobs and
the lost income in Chicago, I spent several days with Mayor
Dailey just a couple of weeks ago. He is beside himself. He
does not know what he is going to do to fix the city's budget
because the exodus of manufacturing, he says, his consumers
cannot pay their taxes because the good jobs are going too.
That is the reality.
You have got to think about it in a global situation,
understand that these other countries are trading for advantage
to advance their manufacturing because they know it creates
wealth. If you want to know what a country looks like that is
just a service economy, that is China before they woke up and
realized they wanted to be a manufacturer.
Mr. Toomey. I may want to engage in continued discussion
along these lines. I would come to some different conclusions
than you have on a variety of these things.
Mr. Jones. A practical world and I know who I have to
compete with, and I--
Mr. Toomey. I think comparing China to the United States in
that way is an interesting comparison, but let me yield to the
gentleman from Maryland for his questions.
Mr. Bartlett. Thank you very much.
I would like to continue a bit of discussion on the issue
that Mr. Toomey raised about corporate taxes, and make the
argument that corporate taxes are a very bad idea, that they
are the most regressive tax that we have, that they hurt poor
people in two ways:
The first way that they hurt poor people is that they
increase the cost of the products that poor people have to buy
because, as Mr. Toomey says, businesses do not pay taxes. They
collect them. Tax simply becomes a part of the cost of doing
business and you add it to your cost, and you charge enough for
your product so that you can pay the tax and still make a
profit after the tax. And so poor people are now paying more
for everything they buy because of corporate taxes, which is a
very regressive tax. A rich guy can pay the increased cost. It
does not hurt him. It hurts the poor guy.
The second way that the poor guy is hurt by this is that it
makes our businesses less competitive in the global
marketplace, which is what we are here talking about today.
Mr. Jones. Absolutely.
Mr. Bartlett. And so the poor guy not only has to pay more
for his product, and he does not even have a job now to get the
money to buy the product because the job he would have had has
now gone to the Pacific Rim or somewhere because of corporate
taxes which among many other things has made our businesses in
this country noncompetitive globally, and so it is gone.
So why is not the best idea--and by the way when I talk to
my liberal friends, they understand this for about five
minutes, and then beyond that, they say, gee, those companies
are rich, let us collect taxes from the companies. I have to
come back and tell them, gee, you cannot collect taxes from a
company. All the company does is collect the taxes from the
people that sells its product to, or its service, because if
they do not do that, they are going to be out of business.
So why is it not the best solution to your problem just to
do away with the corporate tax? Would not everybody be better
off, you, and consumers, and everybody better off? And if the
government needs more money, now, I think the government needs
to cut its spending and stop doing unconstitutional things like
philanthropy, like health care except for our military, like
education, none of which, by the way, can you find any hint in
Article 1, Section 8, are legitimate functions for the federal
government.
But if you really need more money, would it not be less
regressive to get it simply by an increased income tax so that
rich people now pay more of it?
Mr. Jones. Who are you asking?
Mr. Bartlett. Sir? Any of you, you know. But I just think
that the corporate tax is a very bad idea for businesses. We
have driven jobs overseas with it. We are making products cost
more for our poor people, and why cannot we convince our
liberals, who claim to love--by the way, I know they really
love poor people because they make more of them so they have
more to live, but why cannot we make that argument that
corporate taxes are a bad idea?
Ms. MacGuineas. Could I respond to that?
Mr. Bartlett. Yes.
Ms. MacGuineas. I would certainly agree with what both of
you said, that corporations do not pay taxes, people pay taxes.
I think it is not quite clear that the corporate tax is so
regressive. In fact, generally I hear it is one of the more
progressive taxes because it is passed along both in the form
of lower wages, higher prices as you talked about, and also
lower returns on capital. And I think the distribution or the
incidence of that tax probably changes during the different
business cycle where different parts of the market are tighter
or are looser.
But I agree with you that getting rid of the--I would agree
with both of you that getting rid of the corporate income tax
has a lot of benefits to it. One of them is that it is one of
the least transparent taxes we have, and the world of bad
budgeting, which is the world we live in right now. I think a
lack of transparency on both sides of the budget is very
problematic. You need to know the ways in which you pay taxes.
However, I think you can eliminate the corporate income tax
if you keep the individual income tax in place, because then
you have what amounts--
Mr. Bartlett. Wait, if you would hold just one moment. I am
no fan of the corporate--of the personal income tax.
Ms. MacGuineas. I had a feeling you would say--
Mr. Bartlett. I would do away with that in a heartbeat and
put in its place a consumption tax.
Ms. MacGuineas. Right.
Mr. Bartlett. So I think do away with the corporate tax,
put in place a consumption tax. Now, this is clearly not
regressive. You clearly are now helping poor people.
Ms. MacGuineas. Well, and I think what I am suggesting when
I talk about a progressive consumption tax or something like
the Nunn-Dominici tax that was brought up about 10 years ago is
that consumption taxes are desirable for so many reason. And if
we could sort of come to an agreement that there is a role for
them, particularly in this economy, and then hammer out the
details of how progressive to make them, and I might want a
more progressive tax. I probably would want more of a
progressive tax than you would overall, but we could argue
about how to structure the tax burdens. But create a corporate
tax, not a wage tax, but a corporate tax to replace both the
corporate income and individual income tax. I think that there
is a compromise there to be had.
Mr. Bartlett. Is not any corporate tax regressive?
Ms. MacGuineas. Not--
Mr. Bartlett. Because the consumer has to pay the tax. You
just admitted that people pay taxes, corporations do not pay
taxes.
Ms. MacGuineas. Absolutely.
Mr. Bartlett. Does not that make any corporate tax a
regressive tax?
Ms. MacGuineas. No. When it makes it progressive is when
its shareholders who are paying the tax, capital owners who
tend to be higher earners, and nobody knows for sure what the
incidence of this tax is, but a lot of people believe that the
corporate income tax is actually one of the more progressive
taxes.
Mr. Bartlett. I am having some trouble understanding that.
Mr. Hufbauer. If I could, this is a very interesting
debate, we could spend all afternoon on it. One of the vices,
but it is also the great virtue of the corporate tax is that
nobody knows, including economists who have spent their lives
studying it, who actually pays it. So the non-transparency is
kind of a legislative virtue because you can say the guy behind
the tree pays it.
The second point that I would make is that the system for
reasons that congressmen know better than anybody else, the
corporate tax is a mess. I mean, it is unbelievable. And
everybody kind of agrees that we ought to get rid of it.
I would not refer to the replacement tax--the government
needs money--I do not refer to it as a consumption tax. It is a
business tax, business pays it. When VAT is collected, the
person who buys the good as an individual is not legally liable
for paying that VAT.
Mr. Bartlett. Sir, if you will excuse me for just a moment.
When I talk about a consumption tax, I am not talking about
VAT. I want taxes to be--I would like the tax to be in big, red
numbers, bigger than the cost of the product, so when the
American pays the tax he knows it. A VAT tax is hidden. I want
that to be a consumption tax of something like 20 percent on
everything you buy.
Every time you buy it, I would like you to know how much
your government is costing you.
By the way, tomorrow is the first day this year you will be
able to work to get any money for yourself. Today is cost of
government day. You have worked all year so far to pay for the
cost of government--
Mr. Toomey. And on that note--
Mr. Bartlett. --state and local taxes and unfunded federal
mandate.
Mr. Toomey. And on that note I will yield for a question to
the gentleman from Indiana.
Mr. Chocola. Thank you, Mr. Chairman.
Just quickly, before I got here I was--I lived in Mr.
Jones' world. I was CEO of a publicly traded company that about
40 percent of our sales are outside the United States. We
utilized the FSC and the ETI benefits. We have competed against
companies importing here, they got VAT rebates.
Would you argue that the VAT rebate is in effect exactly
the same as a FSC/ETI benefits?
Mr. Hufbauer. No. The FSC/ETI was very small. It was very
modest.
Mr. Chocola. But in effect the same?
Mr. Hufbauer. Well, you could say very roughly
qualitatively similar, but in terms of magnitude, always much
smaller, and it only applied on the export side, not on the
import side. There are many companies that would not take
advantage of the FSC/ETI for--well, basically small business
had a hard time taking advantage of it. Not all small business,
but many did.
Mr. Chocola. Has anybody filed a claim with the WTO against
the VAT rebates?
Mr. Hufbauer. Well, if you go back to the time that Claude
was talking about, this was a major issue in the early 1970s,
and U.S. Steel Corporation then did bring a case, and for a
combination of what I would call political, the alliance issues
of the day, and economic reasons, the treasury department
rejected that case and the treasury department's holding, the
decision was upheld by the Supreme Court, not on the economics
of it, but on the grounds of the competent administrator.
So yes, 30 years ago there was a very lively dispute in
this country, and the United States went, for reasons that Mr.
Jones thinks were quite misplaced, in the direction of
accepting the rebate of the VAT.
Mr. Chocola. Would it be your suggestion or recommendation
that a claim be filed with WTO? And if so, what do you think
the conclusion would be?
Mr. Hufbauer. My suggestion, just to hog the microphone a
little bit more, is that I would not pursue the litigation
route because I think it is a loser given the ways the rules
are now written. I am exactly with what Ms. MacGuineas and Mr.
Jones have said.
We need to change the rules, and we have to make it a
priority to change the rules. And if we cannot change the
rules, then I suggest with this reason and others we change our
own system, because the corporate tax is, I think--words cannot
express what I think about the corporate tax.
Mr. Barfield. I would just like to add just on the trade
side, I will defer to my colleagues on the intricacies of the
tax side, it is also true, I think, that in the late seventies
both the Europeans and the United States were told that the
tax--this part of their tax system was GATT-illegal, and that
is when they reached in 1981, what both sides at the time
thought was a compromise. You will live and let live.
So the FSC cases came fifth, and then the United States,
because it thought that what it had was still probably too
egregious a change to the FSC. Then you had 15 years where
nothing happened, including the Uruguay Round. One could argue
about whether or not you should have been more specific, but as
I say in my testimony, the panels and the appellate body had
this history before them. They knew this, and they blew right
through it, determined to put their own stamp on it in a way
that I think was really incompetent and clearly ignorant of
international tax rules.
Let me just go back and talk about the colloquy we have had
for the last 10 or 15 minutes. You know, we have now--starting
with the FSC and ETI decisions, we have now gotten into a
debate about the U.S. tax system. That is a great debate to
have, but the problem with it is to have that debate under the
gun of the WTO and under the deadlines of retaliation means
that you are not going to--you really are not going to have a
good outcome.
And the lesson here from me is, and I have a great deal of
sympathy with Chairman Thomas and with the administration. I
think the reason that they did not raise more hell than they
did when the series of decisions came down or were not really
more firm is that--my view, my view is that both the
administration and Thomas thought that they could use the
decision to effect reform in the United States. And that is a
bad--without criticizing, that is a--clearly we are seeing how,
as Ms. MacGuineas has pointed out, a bill that is a Christmas
tree bill that has been done because it is under the gun of
retaliation and timing.
And so this judgment was, I think, a flawed judgment. And
as a lesson for us not to think that you can just use a WTO
decision and retaliation to somehow get a better economic
policy. I think normally it is not going to happen because you
cannot get over the particular interests, particularly in
taxes.
Mr. Toomey. I have got another question if we care to do
another round. I would like to pursue just a couple of ideas.
First, a question maybe either the economists could help us
with this one, and I am one that thinks we do shoot ourselves
in the foot with regard to our manufacturing in many ways--the
level of taxes, the litigation that we tolerate, the regulation
that we impose--we systematically put ourselves at a
competitive disadvantage.
Having said that, does anybody on the panel happen to know
what the--where the total absolute value of American
manufactured goods are today in relative terms to the past?
What percentage? Are we at an all-time high? Are we at a many
year low in terms of the dollar value, adjusted for inflation
or not, of total manufactured output? Does anybody know?
Mr. Hufbauer. Let me toss out a few figures. What has
happened in manufacturing because of its very high productivity
is that the labor force engaged in manufacturing has been on a
very--
Mr. Toomey. Right.
Mr. Hufbauer. --long-term downward trend.
Mr. Toomey. Right.
Mr. Hufbauer. From about 30 percent in the early 1950s to
about 15 percent today. However, the share of Gross Domestic
Product accounted for by manufacturing has not fallen nearly by
that percentage.
Mr. Toomey. Right.
Mr. Hufbauer. About 22 percent of Gross Domestic Product is
now in the manufacturing sector. And if you do the arithmetic,
you can see that manufacturing workers produce more than their
pro rata share of the labor force, and that is down somewhat.
We have a trade deficit, which has been alluded to, which
is concentrated in the manufacturing sector, it is about $450
billion in manufacturing. And if suddenly we had a trade
balance, and there is a lot of macro economics that goes behind
that, you would increase the share of manufacturing in GDP by
about three or four percent. Now, something else would go down
in GDP, but that is a very rough survey of some numbers.
Mr. Toomey. That sounds--if I can just follow up because
that is not exactly what I asked, and I understand and I agree
with everything you have said. But given that the share of our
total GDP has--that is comprised of manufacturing has declined
somewhat, but of course total GDP has grown--
Mr. Hufbauer. Oh, yes.
Mr. Toomey. --is it true that we manufacture more today
than we ever have before?
Mr. Hufbauer. Oh, yes, yes.
Mr. Barfield. Yes, yes.
Mr. Toomey. So total American manufacturing output is at a
record high?
Mr. Barfield. In the nineties, and I do not have the
numbers right in front of me, but if you just take the absolute
amount for 1990 through 2002, we increased the volume and the
amount by much more than our trading partners.
Mr. Toomey. Right.
Mr. Barfield. Major trading partners.
Mr. Toomey. I just think that this is important because I
think we often lose sight of the fact that we manufacture--our
manufacturing today is at an all-time record high.
Now, it is true that other sectors of our economy have
grown more rapidly than manufacturing, and so it is not at a
record high in terms of percentage of GDP, and the productivity
gains have been much greater there than in other sectors, so as
a percentage of labor force it has actually declined
significantly, but we make more stuff than ever in that sense.
The specific question that I had about this more narrow
debate, my understanding is, Mr. Hufbauer, you are advocating
one potential solution to this problem is to have the WTO
change the rules so that it would ban the border VAT rebate.
Mr. Barfield, do you agree that that is a viable solution?
Mr. Barfield. I think it is going to be very tough for this
reason. This is another downside of the new so-called judicial
system we have got there. The European Union has one big--when
you have won, they will turn to us and say, what are you
talking about, change our system. We just won. It not that they
might not, but it is going to be very difficult, and the price
we would have to pay in a trade negotiation might be quite
high.
Mr. Toomey. So politically it is difficult.
Mr. Barfield. I would not--I do not disagree with you. I
think you should try to get--we should--you know, we should get
this changed because it is--you know, it is an inequity that
hits us, but I think it is going to be very difficult.
Mr. Toomey. Do either of you have a comment about this?
Ms. MacGuineas. I think I would prefer to revisit the
distinctions that exist between direct and indirect taxes,
which I do not think make a lot of sense in this environment.
But I am probably also less concerned about this issue as a
whole in some ways--back to your initial point, which is there
are so many tensions in tax policy, but one of them is that of
the producer interest versus the consumer interest, and we are
in a situation where the consumer interests are doing pretty
well, and I tend to think we end up with better overall
economic policy if we look at things from the consumer
perspective.
So I am less concerned about those changes that are
necessary to address this problem as much as the larger tax
problems at hand.
Mr. Toomey. Mr. Jones, do you have anything you wanted to
add?
Mr. Jones. Well, a couple of thoughts.
You asked earlier about the--you mentioned your company
exported. About 25 percent of what we product is exported, and
the offset we would get from the FSC is not equivalent to the
offset that the--I would love to be a German manufacturer or a
Japanese manufacture, I guarantee you. I do not know what it
would be, but I believe we would export more, significantly
more if we had an equivalent offset.
The second thing, in the WTO that always worries me is I do
not know why we agreed to this, but WTO is one country, one
vote, and you know, under the old system we had some leverage
which reflects the size of our economy, and we certainly do not
have one vote at the UN, we have a veto. And I do not know what
you do about that, but it leads me back to what is practical it
seems, it may be more practical for us to change our tax code
which is, again, to eliminate the corporate income tax and have
some kind of a consumption tax or a VAT. That is something we
can do.
I just do not have much hope that the WTO is going to give
us any relief from what I have seen in their decisions. I think
the Europeans, as you say, they have had some very significant
victories in this area, and you are going to have a hard time
there.
Mr. Toomey. The gentleman from Indiana.
Mr. Chocola. Just quickly following up on the--Mr. Jones,
coming from a manufacturing background you are not gong to find
a bigger fan of manufacturing or a bigger advocate, but also
recognize realities of the global economy we live in, which
provides a lot of opportunities, and I think we engage in a lot
of hyperbole and a lot of rhetoric sometimes.
I think it is important when we talk about trade issues
that we keep in mind--as Mr. Toomey just said, we essentially
make more widgets that we ever have, personal incomes are up.
And so when we say there are no good jobs, I think we
compromise the effort of focusing on the real problems, and I
have always said when I was with a company that we would never
move our business for low wages. We are not intending to
compete on low wages. What we might move our business because
of all the taxation, regulation, litigation that we had to deal
with.
Would you agree with that, that really if we only focus and
talk about low wages we are really taking our eye off on the
real problem, is the total cost of doing business?
Mr. Jones. I have not said anything about--
Mr. Chocola. No, I am not saying you specifically, but is
this issue as discussed as I hear it in my district and around
the country--
Mr. Jones. I think this VAT inequity is a much bigger
burden and a challenge for my company than the wage issue. I do
not know if I am answering your question. I can only speak from
my experience.
Mr. Chocola. Well, I guess I am hoping to get some input as
to how we can make sure that we focus on the real issues, which
I think are things like this--fair trade policies and
effective--
Mr. Jones. Right.
Mr. Chocola. --enforcement, and that is why I was asking
about whether the impact or the effect is the same of the VAT
rebate as the FSC/ETI; not the quantitative impact. Because if
it is the same, then maybe we should try to enforce it more
effectively with the WTO effort. But I am concerned that we get
into the hyperbole which distracts from really focusing on the
problems that face small businesses and manufacturers in
America.
Mr. Toomey. Well, I thank the gentleman from Indiana, and I
thank the witnesses for testifying. Thanks for traveling here
to be with us today. I really appreciate your input on this as
my colleagues do, and the hearing is now adjourned.
[Whereupon, at 3:00 p.m., the Committee was adjourned.]
[GRAPHIC] [TIFF OMITTED] T6503.001
[GRAPHIC] [TIFF OMITTED] T6503.002
[GRAPHIC] [TIFF OMITTED] T6503.003
[GRAPHIC] [TIFF OMITTED] T6503.004
[GRAPHIC] [TIFF OMITTED] T6503.005
[GRAPHIC] [TIFF OMITTED] T6503.006
[GRAPHIC] [TIFF OMITTED] T6503.007
[GRAPHIC] [TIFF OMITTED] T6503.008
[GRAPHIC] [TIFF OMITTED] T6503.009
[GRAPHIC] [TIFF OMITTED] T6503.010
[GRAPHIC] [TIFF OMITTED] T6503.011
[GRAPHIC] [TIFF OMITTED] T6503.012
[GRAPHIC] [TIFF OMITTED] T6503.013
[GRAPHIC] [TIFF OMITTED] T6503.014
[GRAPHIC] [TIFF OMITTED] T6503.015
[GRAPHIC] [TIFF OMITTED] T6503.016
[GRAPHIC] [TIFF OMITTED] T6503.017
[GRAPHIC] [TIFF OMITTED] T6503.018
[GRAPHIC] [TIFF OMITTED] T6503.019
[GRAPHIC] [TIFF OMITTED] T6503.020
[GRAPHIC] [TIFF OMITTED] T6503.021
[GRAPHIC] [TIFF OMITTED] T6503.022
[GRAPHIC] [TIFF OMITTED] T6503.023
[GRAPHIC] [TIFF OMITTED] T6503.024
[GRAPHIC] [TIFF OMITTED] T6503.025
[GRAPHIC] [TIFF OMITTED] T6503.026
[GRAPHIC] [TIFF OMITTED] T6503.027
[GRAPHIC] [TIFF OMITTED] T6503.028
[GRAPHIC] [TIFF OMITTED] T6503.029